27 public sector banks, 93 commercial banks, over 10,000 non banking financial and Gold companies and several micro-finance institutions, but ask any entrepreneur the ease of getting a loan. A mixed response is most likely, with majority opting for diplomatic correctness over factual accuracy.
Pose the same question to any person frequenting a bank for a personal loan. And it is unlikely to come across a positive response. Although most financial organisations advertise their products as single-click loans, credit processes such as scrutiny of loans, credit reports usually takes time. And even in the instance of customers sharing the best of their documents, the loan amount offered is usually below the expectation.
Getting a loan is certainly a monumental feat in this era of digitisation. And this is the exact demand that peer-to-peer companies such as LenDen, i2i Funding, Faircent, Lendbox are keen to fulfill.
Sify.com's Sairaj Iyer interacted with Raghavendra Pratap Singh, the co-founder of i2iFunding to understand the size of this demand. i2i Funding is India's second largest p2p lending platform, with a size of 50,000 customers. The company aspires to cross Rs 2 crores in monthly disbursal by October 2018.
Isn't it easier getting a loan from a bank that one regularly interacts with, rather than a new entity like a P2P?
Unless you have a very good credit history and stable income, banks would rarely offer you an unsecured personal loan. Only 3-4% people in India can get personal loans easily from the banks and NBFCs, rest must go to private money lenders at super high interest rate of 3% - 5% per month. This is where P2P loans come into picture. P2P loans are more flexible. Borrowers with good credit profile can borrow as low as Rs 25,000 even for 6 months and may prepay the loan without any penalty at much lower interest rate. Banks don’t offer such flexibility. Moreover, those with high creditworthiness can secure loans faster at P2P platforms than with banks.
A practice among the sector is to seek PDCs (Post-dated cheques) in order to maintain delinquencies. Although this minimizes risk, it certainly has a put-off on the customer. Any key observations on this regards?
It will be there for some time as it helps in expediting the collection from defaulters. The key is to collect all available data points and then build such a robust big-data based credit evaluation model that the delinquency is nearly zero. Bake this delinquency in the commercials and leave PDCs behind. Technology is the only way to make this seamless.
Tell us a bit about the experience of serving 50,000 customers. What were the challenges like, and what helped in reaching this milestone?
We now have more than 50,000 registered users. For us each customer is unique and important. From concept, business model, new product launch or acquiring initial customers, each step has been challenging yet fulfilling. If I have to pinpoint, our biggest challenge was hiring the right resources within our limited budget. It takes lot of time to hire a right candidate who is willing to work for a start-up and whose thought process is aligned with our vision.
We also faced challenges such as convincing customers and investors for P2P. Retail investors were very skeptical about new investment products or concepts, but we were able to convince them. Our existing investors are encouraging others to register on our platform to get maximum benefits.
How is i2i faring against the likes of Lendenclub, Faircent, Lendbox, Rupaiyaexchange etc?
All leading P2P players are still small in comparison to banks and NBFCs of similar size. Most players are disbursing amounts in the range of Rs 50 lakhs to 2 crores. We are disbursing more than Rs 1 crore per month now and are expecting to cross Rs 2 crores per month in disbursals by October 2018. As per data available to us, we are 2nd largest P2P Lending platform after Faircent. We are working to leverage technology in a way never seen before. Whoever does it at the earliest and in smartest way will emerge as a winner.
How would you compare the P2P sector in markets like China and US with that of India? Any specific room for improvement in India? (This on the regulatory, consumer and technology side)
Chinese and the US markets are quite matured. We are nascent and preparing to spread our wings. We need to work hard on all aspects – regulatory, consumer, technology, human resource etc. It is just the beginning of the ride.P2P lending is one of the leading means of financing in countries such as the US, the UK, Germany, China etc. and many p2p players have grown to become Billion dollar companies. P2P Lending is now China’s third most popular choice of investment for investors. The market has been growing multifold since its humble beginning in year 2010. Not only China, P2P Lending is big in the US, the UK, Germany and many more other countries and has been growing in leaps and bounds. The top two lenders in the US accounted for $18 billion of loans disbursed in 2017. In India also, I see P2P lending to follow the similar growth trend that has been witnessed by ecommerce industry.
What is a borrowing or a lending fee on your platform? What is the consumer perception on these charges?
Investors have to pay minimum Rs 500 or 1% of the investable amount and applicable taxes thereon., which is among lowest in this industry. Borrowers have to pay a one-time account opening fee of Rs 100. Moreover, loan processing charges vary as per the borrower’s risk category and nature of employment. For salaried borrowers, the minimum applicable loan processing fee is Rs 2,000. For the most creditworthy borrower—classified in the category “A”; the loan processing fee can go up to 3% of the loan amount. For the least creditworthy borrower—classified in the category “F” the maximum 6% loan processing fee can be charged. For self-employed borrowers, processing fees range from 4% to 8%.
Borrowers don’t have to bear any prepayment penalty. Serious users don’t have any issue in with the charges levied by us.
What returns are investors being promised?
Investors are not promised any fixed returns. Investor can lend as low as Rs. 5,000 to any borrower. Interest rates are dependent on risk profile of borrower and it is ascertained by i2i. Investor can earn between 12% to 30% depending upon their risk appetite. On the average, on our platform investors are making 18-20% of returns. Investors get repayment every month in the form of EMI. They have the option to reinvest EMI into new loans to increase their returns.
Small example of returns given in below table:
Investors start getting their principal amount back as well from first month. Our advice to investors for maximizing returns is that they should reinvest the money coming back every month to create a large corpus.
Could you share a brief about your credit analysis framework?
We have developed a fully automated in-house Credit Evaluation Model, which is based on real time integrated analysis of data from mobile, social media, CIBIL history, bank account statement etc. Our fully automated credit analysis evaluates borrowers' profiles on more than 100 parameters using thousands of data points. Based on the individual score for each of the parameters, final score is assigned to the borrower. This determines their risk category and interest rate. Borrowers above a minimum hurdle score are listed for funding.
Tell us about your learning and experiences from i2i?
Most of my mentors told me that only if you take a risk is there a chance to succeed. When the times have passed, you always cherish most challenging phases of your life not the most dull or so called stable phases of your life. So stop ideating and start working. You are always going to face lot of difficult situations and many people who would question your business idea may even force you to think whether you made the right decision by starting up. Never get disheartened and remain focused on your goal. Make sure that you continue to make effort in right direction.